CHECK ON INFLATION TO ENHANCE SAVINGS CAPACITY

AMANULLAH BASHAR
(feedback@pgeconomist.com)
June 6 - 12, 20
11

The fourth budget of PPP-led government with eye wash of one percent reduction in GST, a 15 percent raise in salaries and pension of the government employees, raising tax exemption slab from Rs3 to 3.5 lakh of the salaries class and some other people specific measures, indicates that the present government is looking for another five year term in the seal of command.

The prime objective of the political parties in Pakistan is to return to power, which in fact is the right of any democratically elected government yet it essentially calls for winning the heart of the masses with the relief measures to their sufferings. It is the fundamental right of the masses that their honor, life and property are well protected while basic needs like health, education and justice are provided at their door steps. This is up to the government to ponder upon from core of heart that whether these fundamental rights were dispensed with properly or not.

Finance Minister Abdul Hafeez Shaikh unveiled the Budget Proposals for 2011-12 with an outlay of Rs2.767 trillion which is 14.2 percent higher than the budget estimates of the outgoing financial year.

The budget stressed upon the government's resolve to bring down fiscal deficit to four per cent, bringing inflation down to single digit, enhancing resources to meet the development requirements for the socioeconomic development of the country.

The government in the outgoing budget approved 50 per cent ad-hoc relief to its employees besides ensuring their medical allowances and pension. In the current budget 2011-12, the government has taken a number of measures to provide relief to the people however unless the monetary policy is put in right direction supported by genuine fiscal measures the target of containing inflation seems a distant dream.

According to the budget proposals, the government employees from Grade 1 to 15 will be given 25 per cent raise in their conveyance allowance. All civil and armed forces employees irrespective of their station of duty would get the allowance according to its rate. The budget has proposed to increase different allowances of the government employees from grade 1-15.

The adhoc relief allowance given to the government employees up to July 2009 will be merged in basic pay scales of 2008 and new pay scales are proposed in the budget. The employees of grade 20 to Grade 22 of the government in the budget are proposed to compulsory monetization of their transport facility.

One of the significant proposals presented by the federal minister was the reduction in government's expenditures, especially the expenditures of the public sector organizations that are vital for the welfare of the people. A committee is set up with an assignment to overview all the expenditures by the State owned organizations and submit its recommendations.

It may be noted that current expenditure constitutes 83.7 percent of the total outlay of the new budget as compared to 89.7 percent of the revised estimates of the outgoing year. The expenditure on public sector services including loans, transfer payments and superannuation allowances is estimated at 1660 billion rupees which translates into 71.1 percent of the current expenditure.

The volume of public sector development program during next year would be 730 billion rupees while 97 billion rupees allocated for other development expenditures. Ten billion rupees have been allocated for rehabilitation and reconstruction work in flood affected areas. The size of the provincial public sector development program would be 430 billion rupees as against 373 billion rupees during current year.

WATER & POWER

The infrastructure development, education and health would be focus of the federal public sector development program next year which is a step in right direction. Infrastructure would get 155 billion rupees, social sector 122 billion rupees and others 23 billion rupees. As far as infrastructure development was concerned, the water has been given priority for which 33.2 billion rupees were allocated in the PSDP. Though the power crisis is the most burning issue of the day which is causing paralyzing effects on economic development, yet it gets second priority as Rs32.5 billion have been allocated for power development. However, Wapda and Pepco would make investments worth 83 billion rupees from their own resources to overcome load shedding crisis.

In the resource development segment, eighteen billion rupees have been earmarked for Diamir Bhasha Dam, 10.8 billion rupees for one thousand megawatt Neelum-Jhelum Hydel project, 14.6 billion rupees for Guddu Combine Cycle Power Project and 13.9 billion rupees for Chichukimalian Thermal Power Project, besides allocation of Rs15.5 billion for Chashma Nuclear power plants three and four which would generate six hundred megawatt of electricity.

COMMUNICATION

Transport and communication would get fifteen billion rupees out of which 35 billion rupees have been earmarked for National Highway Authority and fifteen billion rupees for Railways.

HEALTH & EDUCATION

Although health and education have been devolved to the province, the federal government has taken upon itself some of the important responsibilities like Lady Health Workers and Mother-China Healthcare programs supported by Rs15 for these projects. It may be recalled that there was uproar over shifting of the Higher Education Commission to the provinces however the government has postponed the idea and it would continue to be the fiscal responsibility of the federal government with budgetary allocation of Rs40 billion.

DEFENCE

Defence allocations for the next year were proposed at 495.2 billion rupees while 166.4 billion rupees have been allocated for subsidies.

A major chunk of the budgetary resource would go to debt servicing for which Rs790.9 billion were allocated.

INFLATION

It is important to note that the budget emphasized over containing inflation with a pledge to bring it to single digit, it is yet to be seen how the financial managers succeed in attaining that gigantic target of taming the mounting inflation. It would not be out of place to suggest that despite inflationary pressures if the monetary policy is eased with a view of reactivating the idle economic activity it would help people to generate income and beat the impact of inflation to a great extent.

In order to broaden the tax base, 2.3 million tax evaders have been identified. Of these seven hundred thousand people have been selected in the first phase and notices to them will be served in three months' time. The government expects recovery of around three billion rupees from the first ten thousand people.

In order to bring reforms into the system of duties, it is proposed to abolish all special excise duties. Out of three hundred ninety-seven regularities duties, some three hundred and ninety-two are being abolished. There is also proposal to lower federal excise duty on cement from seven hundred rupees per metric ton to five hundred rupee per metric ton. Federal excise duty on soft drinks has been reduced from twelve to six percent. A number of other steps are also taken that would promote investment, help improve capital market and generate more employment opportunities.